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A Cost Model Of Building Societies As Producers Of Mortgages And Other Financial Products

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  • Donal G. McKillop
  • Colin J. Glass

Abstract

This study examines the structural characteristics of UK building societies. The analysis views societies as multi‐product firms which produce both mortgage and non‐mortgage products. A two output, three input hybrid translog cost function is employed to obtain econometric measures of overall and augmented economies of scale; input‐specific and augmented input‐specific economies of scale; product‐specific scale economies; and economies of scope. The empirical analysis offers three key insights into the industry. First, there is evidence of significant augmented economies of scale for both national and regional societies. Second, only national societies are able to reap input‐specific economies of scale through the use of capital. Third, for regional and local societies, cost inefficiencies actually emerge in their production of mortgage and non‐mortgage products.

Suggested Citation

  • Donal G. McKillop & Colin J. Glass, 1994. "A Cost Model Of Building Societies As Producers Of Mortgages And Other Financial Products," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 21(7), pages 1031-1046, October.
    • Handle: RePEc:bla:jbfnac:v:21:y:1994:i:7:p:1031-1046
    DOI: 10.1111/j.1468-5957.1994.tb00362.x
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